Will Johnson & Johnson Earnings Top Pfizer and Merck?

Johnson & Johnson (NYSE: JNJ) will release its quarterly report on Tuesday, and after setting new all-time highs in August, the stock has pulled back somewhat. Even though J&J has a well-balanced business that includes medical device manufacturing and sales of consumer over-the-counter health-care products, the company's pharmaceutical division arguably has the best potential to produce blockbuster growth that can drive Johnson & Johnson earnings higher.

Johnson & Johnson has been a household name in the U.S. for decades, with well-known products like Band-Aids and its namesake baby shampoo setting the stage to create lifelong relationships with consumers at an early age. Yet while J&J's consumer business provides reliable cash flow, the pharmaceutical segment gives investors the chance to reap big benefits from promising prescription drug discoveries. The trade-off, though, is that J&J faces more competition in the pharma space. In particular, Merck (NYSE: MRK) has a well-established diabetes drug that could stand in the way of a newly approved treatment from J&J. Pfizer (NYSE: PFE) is also working hard in the diabetes space, working with Merck on a drug candidate that could either stand alone or work along with Merck's current offering. Let's take an early look at what's been happening with Johnson & Johnson over the past quarter and what we're likely to see in its report.

Stats on Johnson & Johnson

Analyst EPS Estimate

$1.32

Change From Year-Ago EPS

5.6%

Revenue Estimate

$17.43 billion

Change From Year-Ago Revenue

2.2%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

What's next for Johnson & Johnson earnings?In recent months, analysts have had mixed views about the prospects for Johnson & Johnson earnings. They trimmed their third-quarter estimates by a penny per share, but they've boosted their full-year 2014 projections by $0.03 per share. The stock hasn't moved much in either direction, falling just 1% since early July.

J&J carried substantial strength into the third quarter, as its second-quarter report was encouraging for investors. Revenue jumped a better-than-expected 8.5%, with adjusted earnings climbing almost 18%. The company showed solid growth both domestically and internationally, and although the consumer products division didn't produce very much of the company's revenue gains, pharmaceuticals provided double-digit sales gains that drove overall growth. Blockbuster arthritis drug Remicade saw almost a 10% sales increase, while promising candidates like immune-treatment Symponi and cancer drug Zytiga saw even larger gains from 2012's levels.

But the future of J&J's pharma segment involves dealing with increased competition. J&J got its Invokana type-2 diabetes drug approved by the European Union's regulatory body overseeing pharmaceuticals back in September, marking what could become a blockbuster drug for the company. But Merck already has a huge vested interest in the space with its Januvia diabetes drug, and even though studies showed advantages to Invokana over Januvia, Merck will work hard to defend its strong position. One area where Pfizer is getting involved is with ertugliflozin, an SGLT-2 inhibitor that could potentially work as a diabetes treatment in its own right or in conjunction with Merck's Januvia. The two companies are collaborating on the drug, but with it still in the trial stage, Invokana will have a huge head-start.

J&J's pharma growth has left Merck and Pfizer in the dust, as both of J&J's rivals have seen sales declines over the past year as they struggle with patent-cliff issues. J&J has to worry about Remicade's coming European patent expiration in 2015, but a solid stable of fast-growing drugs gives it an edge over competitors with more dubious drug pipelines.

Will Obamacare help Johnson & Johnson?J&J has the potential opportunity to boost pharmaceutical sales when millions of uninsured Americans get coverage under the Affordable Care Act. But which companies will Obamacare help the most? Find out in this free report on Obamacare's impact on you, in which our analysts walk you through the opportunities the new law has created and the companies that are positioned to exploit them. The informational edge contained in it is invaluable, but can only be exploited profitably while the rest of the market remains in the dark. To access this free report instantly, simply click here now.

Click here to add Johnson & Johnson to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.